Vietnam’s Amended LOE 2025: New Regulations To Enhance The Corporate Law Regime
July 09, 2025
From July 1, 2025, the amendments to the Law on Enterprises 2020 (“Amended LOE 2025”) and its guiding decree on enterprise registration (“ERD”) have taken effect. This new regulatory framework aims to align Vietnam’s business environment with the recommendations of G7 Financial Action Task Force (“FATF”) and address certain practical challenges in the implementation of the previous regime. Key changes include the introduction of a new reporting regime for “beneficial ownership” and the imposition of a debt-to-equity ratio cap for private placements of bonds by non-public companies. Additionally, the regulations provide clearer guidance on determining the “market price” of listed shares and the redemption of redeemable preference shares.
1. Beneficial Owner
The concept of a beneficial owner (“BO”) is not a new in Vietnam. It was first introduced under the Anti-Money Laundering Law 2022, which imposes know-your-customer (KYC) obligations on financial institutions and other reporting entities. The definition of BO and the corresponding reporting regime have now been further detailed in the Amended LOE 2025 and the ERD, bringing them largely into alignment with FATF’s Recommendation 24. This is an effort to facilitating Vietnam’s removal from the FATF grey list of “Jurisdictions under Increased Monitoring” in terms of compliance with FATF’s framework to prevent the misuse of legal entities for money laundering and terrorist financing.
As a general comment, the new BO reporting regime under the Amended LOE 2025 and the ERD should be viewed strictly within the context of anti-money laundering requirements applicable to enterprises (doanh nghiệp in Vietnamese) incorporated under Vietnamese law. Those enterprises include, among others, limited liability companies and joint stock companies. Given this limited scope of application, this regime does not apply in other contexts, particularly those involving sector-specific ownership restrictions. For example, ownership limits in the banking sector remain based on legal ownership and not beneficial ownership. Likewise, the regime does not extend to business entities other than enterprises; for instance, cooperatives and family households are not subject to BO reporting requirements.
BO Definition
The Amended LOE 2025 and the ERD define a BO in an enterprise through two specific tests, namely equity ownership and control rights. This concept specifically excludes individuals representing State ownership in State-owned enterprises because the Government is probably considered a BO in all State-owned enterprises.
- Equity ownership test: An individual who directly or indirectly owns 25% or more of the charter capital of an enterprise is considered a BO. The 25% equity ownership threshold also covers indirect ownership “through other entities.”
- Control rights test: An individual is considered having control rights and hence treated as a BO in an enterprise when such individual is able to exercise actual control over the enterprise, such as the power (i) to appoint or remove most or all members of the board of directors or the members’ council or the general director of an enterprise; (ii) to amend the charter; or (iii) to decide other key matters specified in the enterprise’s charter. It is likely that the control test is interpreted as positive control (i.e., where individuals hold power to pass key decisions or to procure the passing of key decisions) and not negative control (i.e., where individuals hold veto power over key decisions, enabling them to block actions relating to such decisions).
It is worth noting that both the Amended LOE 2025 and the ERD do not expressly have an equivalent concept to the “on behalf arrangements” test of the BO definition under FATF’s Recommendation 24. This definition reads as follows:
“the natural person(s) who ultimately owns or controls a legal person and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person.” (emphasis added)
The “on behalf arrangements” test under FATF’s Recommendation 24 aims to deal with nominee, trust and proxy arrangements. It captures those who benefit economically or use corporate structures as fronts, even without ownership or formal control. FATF emphasizes the need to identify the natural person on whose behalf a transaction is conducted, particularly in the context of nominee, trust or proxy arrangements. A beneficial owner may be (i) the natural person behind a nominee shareholder, (ii) the hidden principal giving instructions, or (iii) the one who ultimately profits, though not a shareholder of record.
The draftsmen of the Amended LOE 2025 and the ERD deliberately leave out the “on behalf arrangements” test. Therefore, it appears that beneficial ownership through nominee, trust or proxy arrangements is not specifically regulated. However, the 25% equity indirect ownership test and the control rights test may capture certain nominee, trust or proxy arrangements which should be considered in the context of actual circumstances. In our view, the determination of indirect ownership scope to only include ownership “through other entities” and the determination of control rights based on positive control would render this interpretation remote, though cannot be eliminated and subject to the viewpoint of enforcement authorities.
BO Reporting Regime
The Amended LOE 2025 and the ERD mandate that the list of BOs (including personal details of BOs) be submitted as part of the application to register an enterprise, and information on BOs will be updated by an enterprise and stored on the National Enterprise Registration Portal. Such information will be made available for anti-money laundering purposes and will be stored for at least 5 years after liquidation of an enterprise.
Since the enterprise itself bears the obligation to submit registration information including BO information with the authorities, it would not have the visibility of any nominee, trust or proxy arrangements and would have to rely on the information provided by its equity owners. Ultimately, if equity holders fail to provide accurate BO information, it is possible that the enterprise itself may be deemed in breach of its reporting obligations.
Legal implications for breaching the BO reporting obligations remain unclear under the Amended LOE 2025 and the ERD and require further regulatory guidance. Given the primary and fundamental focus of the reporting regime in managing anti-money laundering risks, it is important to take into account sanctions relating to anti-money laundering violations, which include both administrative and criminal liability, in particular the criminal liability under the Criminal Code 2015 (as amended in 2017).
2. Debt-to-Equity Ratio Limit for Private Placement of Bonds
The corporate bond market in Vietnam has faced crises of trust in recent years, particularly after high-profile defaults and scandals (e.g., Tan Hoang Minh, Van Thinh Phat). By imposing a clear leverage ceiling, regulators aim to enhance retail investor protection and to avoid systemic risk. Under Article 128 of the Amended LOE 2025, non-public companies issuing bonds through private placements must ensure that their total liabilities (including the value of the proposed bonds) do not exceed five times their owners’ equity, based on audited financial statements from the year immediately preceding the issuance. By definition, this 5:1 debt-to-equity ratio does not apply to privately issued debt instruments other than bonds (e.g., debentures and promissory notes).
Both “liabilities” and “owners’ equity” are accounting concepts. Liabilities include short-term and long-term debts, such as loans, bonds, and payables to suppliers or third parties, and must also include the value of the bonds proposed to be issued. Owners’ equity includes charter capital, share premium, retained earnings, reserves and other equity items.
This 5:1 debt-to-equity ratio does not apply to the following issuers:
- State-owned enterprises;
- Credit institutions;
- Enterprises issuing bonds to implement real estate projects;
- Insurance, reinsurance, and insurance brokerage companies; and
- Securities companies and fund management companies.
This exemption applies to issuers that are already subject to more stringent issuance conditions under specialized laws.
Notably, the latest fourth draft amendment to Decree No. 155/2020/ND-CP, which guides the implementation of the Law on Securities 2019, also incorporates the 5:1 debt-to-equity ratio requirement for public bond offerings by both public and non-public companies. It is anticipated that the existing regulatory framework governing public offerings and private placements of bonds, by both public and non-public companies, will be amended accordingly to uniformly impose this 5:1 debt-to-equity cap, thereby ensuring consistency across bond offering regulations.
3. New Rule on Market Price Determination
Article 4.14 of the Amended LOE 2025 introduces a new provision on determining the market price of shares or capital contributions. This new rule primarily applies to listed shares.
For listed shares, the market price is defined as either (i) the average closing price over the 30 consecutive trading days preceding a specified reference date, or (ii) a price agreed upon by the buyer and seller, or determined by a licensed valuation organization. Notably, the 30-day average is calculated using a simple average of daily closing prices, rather than the volume-weighted average price (VWAP) commonly used in securities market transactions.
The elaboration on market price determination is expected to bring more clarity in the contexts of private placements, buyback, and related-party transactions of or involving listed shares, all of which use “market price” as a reference point.
4. Repurchase of Redeemable Preferred Shares
Article 112.5(d) of the Amended LOE 2025 introduces a new rule expressly allowing joint stock companies to reduce their charter capital when redeeming redeemable preference shares. This change clarifies that companies may return capital to shareholders holding redeemable preference shares and adjust their charter capital accordingly.
Previously, there was uncertainty as licensing authorities often did not allow capital reduction when a company redeems its preference shares due to the lack of clear legal provisions. The change would facilitate joint stock companies to have better structuring options to offer to different classes of shareholders, hopefully allowing those shareholders to have flexibility and liquidity/exit right when investing in the specific class of redeemable shares.
Conclusion
The Amended LOE 2025 and the ERD are intended to align Vietnam’s business environment with international standards while addressing practical challenges in the current legal framework. The effectiveness of their implementation, particularly concerning the new BO regime, will need to be tested over time.
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